Israeli national flags flutter near office towers at a business park also housing high tech companies, at Ofer Park in Petah Tikva, Israel, Aug. 27, 2020. Photo: REUTERS/Ronen Zvulun

Israel‘s economy grew 3.1% in 2025, official data showed on Monday, rebounding from a 1% pace in 2024, with growth expected to accelerate sharply as long as a fragile Gaza ceasefire holds.

Growth last year was led by a 7.1% rise in investment and a 5.9% gain in exports, along with a modest uptick in consumer spending. Heavy state expenditure during the two-year Gaza war, particularly on defense, gave an added boost to the economy, economists noted.

“The economy is recovering,” said Yonie Fanning, chief strategist at Mizrahi Tefahot Bank. “The indications for the first quarter of 2026 are also positive – you see that in the trade balance data, etc. So, I think it … sets the basis for continued recovery.”

Israel‘s economy in 2025 outpaced an OECD average of 1.7% and 2% growth in the United States. It also was above the Bank of Israel‘s estimate of 2.8%. The central bank projects a 5.2% growth spurt this year.

“What you’re seeing now is excess demand coming after the war, which is coupled with an increase of supply also, for example, in real estate. And so, you see that in investment, and you should see that more going forward in 2026,” Fanning said.

Per capita growth was 1.7% in 2025.

In the fourth quarter, gross domestic product grew an annualized 4.0% from the prior quarter, powered by a 33% jump in exports following an October ceasefire between Israel and Palestinian terrorist group Hamas.

“This is relatively robust print, especially the business sector activity, impacted by a strong contribution from net exports,” said Leader Capital Markets Chief Economist Jonathan Katz.

A Reuters poll of economists had forecast an annualized 2.6% rate in the final three months of 2025.

Third-quarter GDP was revised to an annualized rise of 12.7% from a prior estimate of 11.1%.

The GDP data follow data published on Sunday showing Israel‘s annual inflation rate eased to 1.8% in January – its lowest level since June 2021 – from 2.6% in December, increasing pressure on the Bank of Israel to lower short-term interest rates next week for a third straight meeting.

Following the inflation data, “most people [in the market] don’t expect it to stay on hold,” Fanning said.

The shekel was flat at 3.09 per dollar, close to a 30-year peak hit earlier in February. Tel Aviv share indices gained as much as 0.3%.